Four years after launching a credit card with Apple, Goldman Sachs is facing an expensive exit from a collaboration that rival lenders perceive as too dangerous and unproductive.

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Four years after launching a credit card with Apple, Goldman Sachs is facing an expensive exit from a collaboration that rival lenders perceive as too dangerous and unproductive.

Negotiations and Prospective Bidders

Goldman will face pressure from bidders to cut the value of its investment in order to make the price more appealing while looking for a buyer for its portion of the partnership. Goldman does not disclose the value of its holdings.

The probable dissolution of the Apple-Goldman relationship is yet another setback for CEO David Solomon's consumer strategy, which intended to diversify the bank's earnings outside its traditional core businesses of trading and investment banking.

According to experts, the anticipated writedown on the Apple card would be the latest in a run of losses from Goldman's disastrous entry into consumer banking. In its results, Goldman does not lay out the financial details of the card business. Prospective bidders will likely press Apple to renegotiate the terms of the sale.

According to two additional people familiar with the matter, they will most likely demand access to Apple's confidential credit card data. According to Apple's website, cardholder data is never transferred to other parties for marketing or advertising purposes.

Credit card issuers such as Synchrony Financial, Citigroup, and Capital One would be obvious partners to take on the endeavor if the conditions are adjusted.

At a conference this month, Synchrony CEO Brian Doubles stated that "you've got to have a really good risk-return equation" for card trades.

According to The Wall Street Journal, Apple recently issued a proposal that would allow Goldman to terminate the contract within the next 12 to 15 months, citing sources briefed on the situation.

Apple stated that it is committed to providing a "incredible experience" for its consumers, but declined to comment on the Goldman transaction discussions or conditions.

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Setbacks for CEO David Solomon's Consumer Strategy

Solomon revealed in February that Goldman was examining at "strategic alternatives" for its consumer sector after pulling back its retail ambitions last year.

Under former Goldman CEO Lloyd Blankfein, who resigned in 2018, the bank launched negotiations with Apple to establish a credit card that would tap into the tech giant's massive client base. Goldman's key negotiator was Stephen Scherr, who oversaw the consumer division before becoming finance chief.

Solomon took over as CEO in late 2018, and the Apple card debuted almost a year later. According to a person acquainted with the situation, by 2022, the parties had renegotiated a pact that would endure until the end of the decade.

In October, Solomon told investors that the bank was attempting to eliminate the "drag" on earnings from its credit card business, which also included a collaboration with General Motors.

Analysts regarded his remarks as an indication that the card operations were losing money.

According to one source familiar with the matter and a separate source who was also aware of Apple's original proposal but declined to be identified discussing private negotiations, when Apple first shopped the deal with potential partners, other banks, including JPMorgan Chase, passed because their potential profit cut was too small.

According to Warren Kornfeld, senior vice president at Moody's Investors Service, new credit card firms often lose money in their early years, in part because laws require banks to set aside roughly 7% of predicted sales to cover expected losses.

Goldman was in charge of putting up provisions for credit losses rather than sharing them with Apple.

The Apple card also presented an underwriting difficulty. According to observers, Goldman's clientele are primarily wealthy individuals, and the firm has limited expertise offering loans to less-affluent consumers. According to one source familiar with the incident, as the two corporations attempted to increase income, they handed cards to consumers with lower credit ratings.

According to financial reports, as Goldman put aside more money for problematic loans, the paper losses for its consumer division grew.

The corporations also attempted to entice new consumers by promising "no annual fees, foreign transaction fees, or late fees," according to Apple's website.

They also launched high-yield savings accounts for cardholders in April, allowing Goldman to collect $10 billion in deposits by August, according to Apple at the time.

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